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And on a day when the stakes could not have been higher, or the situation graver, nothing worked in Washington.

On one of the most chaotic and stunning days on Capitol Hill in recent memory, the 110th Congress rejected the $700 billion proposed bailout of troubled financial institutions stuck with a surplus of illiquid assets. Stern warnings had been pouring in from all sides for the past week. Prominent economists and Treasury Secretary Henry Paulson cautioned that failure to act would lead to economic Armageddon. President Bush said of the economy, that without a deal, “this sucker could go down.” Democrats left the vote open for an additional half hour, hoping to persuade fence-sitting representatives to get behind the proposal. The bill failed in the House by 23 votes.

High expectations surrounding the bailout calmed the markets last Friday. But at around 2 pm. Monday, after the sale of Wachovia to Citigroup became final, and as the wheels began to fall off the rescue package, the Dow Jones Industrial Index began spiraling downward to its biggest single-day drop in history, closing down 777 points. The NASDAQ lost more than ten percent of its value. Homeowners, small businesses, and other credit seekers face an extraordinarily tough lending environment in the weeks and months ahead.

House Minority leader John Boehner actually began weeping on the House floor as he urged his colleagues to support the bill. The roll call was unusually political. Only 66 of 199 Republicans voted in favor of the bill, while 140 of 235 Democrats climbed aboard. It was a game of chicken to see who would provide less support for a bill that everyone thought had to pass.

A better, less political, measure of the proposal’s importance was provided by a particularly courageous faction in the House: those members not running for reelection. These 26 retiring lawmakers, of both parties, were heavily supportive—all but three decided to bite the bullet and authorize the massive drain on the Treasury.

As it shook out, Democrats put a respectable number of votes on the table—votes whipped on the assurance that they would have Republican cover on the rescue of a Bush administration albatross. “[House Speaker Nancy] Pelosi went in saying she’d deliver 150 votes, and she did deliver them,” says Robert Borosage, co-director of the progressive Campaign for America’s Future. “If you were just going to do it in Democratic votes, you’d do a very different bill.”

After the proposal collapsed, House Republicans tried to blame Pelosi, saying that the Bush-bashing speech she delivered just before the bailout vote was too partisan and cost votes. Rep. Eric Cantor of Virginia, one of the GOP young guns, said the speech demonstrated Pelosi’s “failure to listen, failure to lead.”

Yet, in the moments before the vote, House Minority Whip Roy Blunt — the man responsible for rounding up GOP votes for the measure — was seen just milling about, clearly not eager to produce the 80 to 90 votes that had been promised during last weekend’s fevered negotiations.

Of course, there was no small amount of gamesmanship on both sides during the negotiations. On one hand, the nation, according to the administration, faced an economic doomsday if the bailout were not approved. But there was also intense public outrage over the “blank check” for Paulson and Wall Street on the other. Calls and emails bashing the bailout have flooded congressional offices since the plan was floated ten days ago. And though over 50 million Americans watched Bush’s prime-time entreaty for the deal, only 24 percent of the public is reported to be in favor of the bill.

The best outcome for vulnerable incumbents would have been for the bill to pass without having to vote for it – a dilemma that produced the embarrassing flame-out yesterday afternoon.

It was not at all helpful that a weakened Bush White House was in no position to deliver Republican votes; indeed some GOP members were clearly playing to their own self-interest by pushing back against the President. It’s no accident that the most strident opposition to the bill came from a new crop of Republicans—the same populist, Limbaugh-listening, small-government types who flexed their muscle at the Thursday White House meeting. “This is conservatives saying we’re not going down with the ship anymore,” says Borosage.

By defining the proposal early on as a bailout of Wall Street–a high-five to corrupt financiers–Bush and Paulson practically assured its failure. By the weekend, they were trying to repackage the deal as a rescue plan for the national economy, but by then it was too late. Economist Brad DeLong says that it’s now critical to completely re-brand any new version of the legislation. “It’s not a bailout of Wall Street. It’s a bailout of Main Street,” he says. “It is a nationalization of Wall Street–or maybe a reconstruction.”

The stakes remain enormous; markets around the world reacted negatively to the news of the failure, and how quickly the parties can come up with a new proposal remains uncertain. Democrats, reportedly, are working on a more progressive bill that may be able to pass with just Democratic votes; and another group in the Banking Committee is trying to figure if there are “cosmetics” that can be added to the proposal to attract more Republican support.

One big question, of course, is how the deal’s collapse will play in the presidential campaign. John McCain will take the worst hit. After dramatically “suspending” his campaign late last week and attempting to postpone his first debate with Barack Obama in order to deal with this crisis, McCain ensured that, for better or worse, his fortunes would be connected to those of the bailout bill. For now, at least, those fortunes are in sharp decline.